Friday, March 13, 2015

OmiCronFX algorithmic routine trades the US Retail Sales report | A lesson for Forex traders who give monetary policy advice

Yesterday morning we commented that the US Retail Sales report, which was due out later in the day, could have a bearing on the recent strong downward trend in the Euro / dollar pair. It was on the cards that the outcome for February might follow those for December and January in being less than stellar. As noted, retail sales are a strong factor in the fate of the currency, just as are employment figures and GDP growth. Indeed, retail sales could be interpreted as an indicator for GDP, because corporate profits are a component part of the formula for the latter measure.

The report yesterday was indeed disappointing.  For other commentators, the weather has now moved centre stage as an explanation, and this may well be true.

The OmiCronFX Mandelbrot algo routine was set against the EURUSD pair at the start of the London session. The Retail Sales report is one that, in the past, the big players in the market have seemed to be able to anticipate. Yesterday was no exception, and in the middle of the morning GMT the dollar started to weaken against the Euro. Mandelbrot took its first trade earlier than that, which was stopped out at break-even. Its second trade provided an excellent profit, as did its third, which was taken in the ten minutes before the report release.

After that the market moved in a sideways direction, with choppy price action (QE in the Eurozone is still exerting its influence, after all). We stayed out of these stormy waters.

A lesson for Forex traders who give monetary policy advice

It is the job of Forex traders to attempt to anticipate the actions of those who are in a position to effect exchange rate movement, and if necessary to react to the changes when they come. Some traders have a tendency to prescribe monetary policy, but this is a mistake. It is imperative that we deal with the world of Forex as we find it, not as we would like to it be (computer algorithms are very good for this – they have no emotions).

We are grateful to the Australian Business Spectator for an article criticising the Prime Minister of New Zealand, himself a former currency trader, for impinging on the independence of the central bank, the Reserve Bank of New Zealand (RBNZ), by commenting that inflation in NZ now justifies a cut in core interest rates. It cannot be forgotten that this would be popular politically, so the Prime Minister has another motivation also.

However, we cannot escape the feeling that if Mr. Key acted in anything other than a strictly objective manner when he was trading Forex, he had better hope that his political career stays on track and that he does not have to go back to working the markets again anytime soon.

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